With the current property shortage and a record number of buyers, people are looking at every way to enter the property market. Buying at Property Auctions, especially online, now seems to be more frequent, and we are getting daily calls from clients to ask about the process. It is important to become aware of the common pitfalls of the Property Auction process.
Buying at a Property Auction – How Does it Work?
Property Auctions have become a popular way to buy and sell property. The speed of the process makes it attractive. Buying at auction is different to buying a property from an estate agent.
When you arrive at the auction (most auctions are held online at the moment) this format is usually as follows:
- The auctioneer will announce that they are going to start the auction.
- The auctioneer will announce each property lot and if there are any last-minute changes the auctioneer will generally refer to them.
- It is not unusual for the seller’s solicitors to read through the contract for sale on the day of the auction.
- The auctioneer will then ask for the opening bid.
Once the hammer falls, you will sign binding contracts for the property and give a deposit cheque of 10% of the purchase price. Remember to take one part of the contract with you and give this to your solicitor.
What Can Go Wrong at an Auction
When thinking about buying a property through an auction, you should note the following
When you are successful at an auction you normally put down 10% of agreed price.
This means that you need to have this money available on the day. If you are obtaining a mortgage you will need to sort out your mortgage application in advance of the auction.
You normally have 28 days to complete or may lose deposit after a period of time.
Another good reason to have your finance (prepared?)sorted well ahead to taking part in an Auction. If you do not finalise the sale, you will lose your deposit and have no property to show for it. Trying to get approval, valuation and completion on a property in 28 days is near impossible.
You buy the property as advertised, pulling out is very difficult.
You should do your homework before the auction yourself. It is vital that you have the property surveyed by an engineer before the auction. If a defect or major defects are discovered in a property after you have signed contracts at the auction you will have no recourse against the seller or the auctioneer. Your engineer should also check the map that you receive relating to the property to ensure that the property and area included in the auction corresponds with what is on the map, and fully compliant with planning permission and building regulations. Properties in Auction generally are there for a reason and some come with legal issues, planning issues, sitting tenants etc, it is essential you get a solicitor to review the legal pack available on the property before the auction, this is a cost you need to factor in. You cannot complete on a property if there are tenants in residence, you must have vacant possession.
How to be Successful at a Property Auction in Summary:
An auction can be a way to acquire a property faster and at a lower price. However, this comes with its own risks and you need to know how to do it right.
- Have your finance sorted before you start bidding – clarify how much you can afford to put down as a bid. Account for extras, such as legal costs, engineering report, stamp duty, etc.
- Do your homework – get an experienced engineer and solicitor to vet the property and its standing.
- Don’t change your mind – once you have signed the papers, there is no going back.